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Communication with a Client
General Regulations and Guidelines for Sales Literature
- Dealer provides material containing information such as:
o
o research reports
o updates on company performance, news affecting company
o new product information
o notices of availability of prospectuses
- Not all information can be provided to clients, some material is “internal use only”.
- Sales person may NOT create their own reports or advertising without approvals.
- Written correspondence (electronic including) should be approved and retained for at least 2 years.
- Material should meet regulatory requirements:
o True, not false and misleading
o No unjustified promise
o No unrepresentative statistics
o May not contain opinions and forecasts not clearly labeled as such
o Fairly present the potential risk
Mutual Fund Sales Communications
- Rules about advertising and sales communication are contained in NI 81-102 Mutual Funds
- Sales communication – is any type communication used to induce the purchase of securities issued by MF. Advertisement – sales communication though social media
- Rule 2.4.4 requires before acceptance of an order, member must inform client of any charge and fees; and under Rule 5.1. Member must maintain record evidencing that client was aware
- “Smart Prospectus” – dealers can deliver fund prospectus, amendment documents and trade conformations through this system. It creates customized prospectus for specific fund.
General Requirements
- Sales communications shall not:
o Untrue or misleading
o Omit facts necessary to keep info from misleading
o Include any statements that conflicts preliminary simplified prospectus
- Guidelines should be followed:
o Statement is misleading if lack explanations, qualifications, limitations
o Past or future investment performance will be misleading if they: portray past income, gain or growth that not justified; representations about security of capital or expenses that not justified; representations about future gains or income that not justified; past investment performance is a predictor of future
- Statement or attributes of MF are misleading if:
o address only benefits, not giving equal prominence to risks or limitations
o make exaggerated or unsubstantiated claims
o make unwarranted or incompletely explained comparisons to other funds
- Sales communication may make comparison among or between funds and indicators such as CPI, stock, bond, average, guaranteed investment certificate, real estate etc, but it must:
o include all facts which would materially alter the conclusions
o present data from the same time periods for each item
o clearly explains any factors necessary to make fair comparison
- Comparison with benchmark:
o benchmark must have existed and been widely recognized during period comparison is made
o benchmark did not exist for all or part of the period, but a reconstruction or calculation of what the benchmark would have been during that period
- Sales communication must also:
o Bear a name of person or entity who prepared sales communication, name of dealer distributing the sales communication
o At least 10 point type, include all warnings
o State that rate of return illustrating effect of compound rate of return is used only to illustrate and not reflect future values of MF.
o Sure that fund referred money fund, cash fund, money market fund satisfies the definition and continue satisfy in future
o Ensure fund referred “no load” qualifies as such
Use of Performance Data
- Performance data measurement or description of the investment performance of a MF. It is addressed in NI 81-102. It includes rating, ranking, quotations, discussion or analysis or rate of return, yield, volatility etc. May not be included in sales communication without “standard performance data”
- Standard performance data calculation of current and effective yield for money market funds, and total return for other mutual funds
- If Performance Data included in sales communication, it must:
o contain standard performance data
o include all elements of return
o Not include return on security before it was included in fund
o Only relate funds under common management or similar investment objectives or index or average
o Reflect any material changes to the fund during the performance measurement period (investment objective, management, etc). Reflect how change would affect fund performance if it would stay
o indicate how more up-to-date standard performance data may be obtained\
o contain only ratings or rankings provided by 3rd parties
o Contain credit ratings prepared by 3rd parties and only most recent ones.
o May not be used in broadcast advertisements
Warnings
Sales communication including performance data must contain certain warnings:
- MFs are not guaranteed.
- Performance data is past performance and it does not indicate future
- Rate of Return doesn’t take into account sales, redemptions, distribution, optional charges and income tax payable.
- Commissions fees and expenses may be deducted
- Investor should read prospectus before investing.
Standard Performance Data
There are two forms of standard performance data:
Standard performance data allows making a comparison between funds.
Other Required Disclosures – Mutual Funds
Disclosure of fees or other incentives paid to distributors by the organization of MF in sales communication:
- Disclosure of Sales Practices provide description of:
o all compensations payable by member of MF to all distributors and dealers of MF
o Sales practices followed by members for distribution of securities of MF
- Disclosure of Equity Interests that
o Member of org has in participating dealer
o Dealer and associates have in any member of org
o Reps of dealers have any in member of MF
- Disclosure Requirements if No Prospectus or Simplified Prospectus.
o Must prepare a document that contains 1. and 2. Document must be provided to each purchaser at or before the time of applicable trade in securities of MF
Prospectus must also disclose:
- range of rates of commission that may be paid
- Method of calculation used in determining the amount of those commissions
- Trailing commission
The Fund Facts Documents
- NI 81-101 produce and file the Fund Facts for each class or series of a mutual fund and for it to be available on the mutual fund website or mutual fund manager’s website.
- Purpose of FUND FACTS is to provide investors with key info about MF in simple language in time that is relevant in the investor’s investment decision.
- Must meet criteria: Not more than 4 pages; easy to understand and plain language; include description of the fund, holdings, performance data, risk, costs and fees.
Дата добавления: 2015-10-23; просмотров: 127 | Нарушение авторских прав
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